Most over-50s underestimate life expectancy

Most over-50s underestimate life expectancy

Eight out of 10 people over the age of 50 significantly underestimate how long they are likely to live, new research has shown.

The Retirement Advantage annual retirement sentiment index, which polled 1,005 individuals over 50, both men and women aged between 50 and 64 expect their life expectancy to be 82 years old.

But when compared to official data, men are underestimating their life expectancy by an average of six years, while for women the gap is eight years.

The introduction of pension freedoms in 2015 – which allow savers to access their pension at the age of 55 - means many people will be left without enough income if they underestimate their life expectancy, Retirement Advantage said.

Andrew Tully, pensions technical director at Retirement Advantage, said planning for retirement can be "a complicated business" and that no one knows how long they will actually live.

He said: “The pension freedoms have given people the opportunity to plunder pension pots early, often before planned retirement ages.

“This is potentially storing up trouble for the future, especially if people are underestimating how long these pensions need to last in retirement.”

Mr Tully argued that “this is an area where proper financial advice is key”.

He said: “An adviser can make a plan for your personal retirement journey which considers all the risks at play, whether that be investment risk, or the risk of living longer than you may have expected.”

Figures published by Mercer in April showed as much as £50bn has been pulled from final salary pension schemes in the past two years.

Meanwhile HM Revenue & Customs data showed more than £14bn have been unlocked from defined contribution pensions since pension freedoms came into effect.

Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, said underestimating life expectancy happens in all age groups.

He said: “In terms of financial planning, getting an accurate assessment of their life expectancy is crucial for those [who are] nearing retirement and looking to take an income from their investments or pensions.

“The worst scenario is to run of money in later life because they’ve spent far too much in the earlier years of retirement.”

Mr Chan provides his clients with a cashflow forecast to assess the likelihood of this happening, based on a number of variables and their desired level of expenditure.

He added: “From this, we can then recommend steps the clients can take to address it.

“We try to ensure the client does not run out of money before age 100 to provide extra peace of mind. Living beyond 100 is still possible, but the risk is a lot lower, and usually the ages the client’s parents lived to can also be quite telling.”